Why Vertex Stock Should Go Higher

Biotech companies are delivering new hope for patients suffering from the world’s deadliest and most debilitating diseases. They are leveraging novel technologies to provide cutting-edge solutions that attack disease on multiple fronts – and in many cases, therapies are customized to the unique needs of individual patients. 

While biotech is an intrinsically risky business – there are far more failures than successes – the periodic wins are so extraordinary that investors continue to support research and development. For example, CRISPR technology has made gene editing a reality. Other biotechs have human organs growing in laboratories. More than 45 biotech firms came together to create effective COVID-19 vaccines in record time, transforming the future of disease prevention. 

Vertex Pharmaceuticals (VRTX) is one of the largest biotech companies in the United States, and it has a long trend of growth. Though it is currently seeing a drop in its share price, many analysts have made a compelling case as to why Vertex stock should go higher. 

What Does Vertex Pharmaceuticals Do? 

Vertex Pharmaceuticals is squarely in the biotech space, but its area of focus is somewhat different from other industry giants like Novo Nordisk (NVO), Amgen (AMGN), Gilead Sciences (GILD), and Regeneron Pharmaceuticals (REGN). Vertex is best-known for its work in orphan drugs – a class of therapies for rare diseases that affect less than 200,000 people in the United States. 

In particular, Vertex has gained notoriety for its success in producing the only pharmaceutical therapies for the genetic lung disease Cystic Fibrosis. It presented the first drug to treat Cystic Fibrosis in 2012, and it followed up with several more in subsequent years. In 2019, Vertex gained approval for a combination drug, Trikafta, that delivers three separate therapies in one. 

Vertex’s success in supporting Cystic Fibrosis patients shows in its growing revenue. In 2017, Vertex recorded total sales of $1.7 billion. In 2020, that figure increased to $6.2 billion. Stock prices went straight up, reaching a high of approximately $290 per share in July 2020. 

Within a year, Vertex stock lost almost 36 percent of its July 2020 peak, and shareholders started getting nervous. Why did Vertex stock go down? And is Vertex stock a buy? 

Why Did Vertex Stock Go Down? 

Like all pharmaceutical companies, Vertex has to put a massive amount of cash into research and development. That investment produces a collection of drug candidates, but very few ever make it to market. Too much can go wrong, even once the product reaches the clinical trial phase. 

In many cases, the therapy doesn’t produce meaningful benefits, and in some cases, it causes significant – even deadly – side effects. Either issue can stop a trial and send researchers back to the lab to start over. When stock prices have increased based on hopes for these drugs, failure can send share prices tumbling down. 

That’s what happened with Vertex. In June 2021, shares lost a full ten percent in less than a day of trading after the company announced a therapy for liver disease was not demonstrating meaningful benefits for patients. 

Coming on the heels of a similar failure in October 2020, investors simply lost faith in the company’s immediate prospects for a profitable new product. After all, Vertex put 26 percent of its sales into research and development, so the lack of progress meant a painful hit to future profits. 

Do those failures mean Vertex is out of the game for good, or should investors buy now while shares are reasonably priced? 

Why Vertex Stock Should Go Higher 

Vertex may have suffered a couple of setbacks, but there are good reasons why Vertex stock should go higher. The first goes back to its success in Cystic Fibrosis therapies. 

It’s true that Cystic Fibrosis is a rare disease – only about 83,000 patients have Cystic Fibrosis in developed countries where costly pharmaceuticals are available. Naysayers believe that since half of those patients are already using Vertex treatments, the remaining addressable market is quite small – especially because Vertex drugs are costly, putting them out of reach for some of the outstanding Cystic Fibrosis patients. 

However, many analysts are optimistic about Vertex’s prospects based on its Cystic Fibrosis therapies alone. Vertex is the only company offering meaningful pharmaceutical treatments for these patients, and patents on the most effective medications are in place through 2037. Vertex has plenty of time to develop new products while relying on its Cystic Fibrosis products for revenue. 

In terms of developing new products, Vertex is pressing on, despite disappointing results from its liver disease drugs. One of the most exciting is another reason that Vertex stock should go higher over the next few years. Vertex has partnered with CRISPR Therapeutics on a gene-editing therapy for severe sickle cell disease and transfusion-dependent beta-thalassemia (TDT), a serious blood disorder. Both are genetic conditions that significantly reduce quality of life.

If successful, the Vertex/CRISPR therapy could generate billions, and Vertex will get 60 percent of the profits. Certainly, regulatory approval and widespread access to treatment are at least two years away, but investors may start to see share prices go up sooner as the therapy passes each regulatory hurdle. 

Finally, many analysts believe that Vertex stock is a buy because there is a clear strategy to accelerate growth. In 2019, it acquired Semma Therapeutics to pursue new solutions for Type 1 Diabetes, and it has a number of joint projects in progress. For example, in addition to collaborating with CRISPR, Vertex has formal partnerships with Moderna (MRNA), Affinia Therapeutics, and Skyhawk Therapeutics. 

Vertex is skilled at building up cash, which makes more and larger acquisitions likely. That points to more opportunities for groundbreaking drugs, which means more sales, more profits, and increasing shareholder value. All of that makes Vertex stock a buy. 

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.